Oil's Continuing Slide

Oil, metals slide on growth fears, firm US dollar

LONDON/SINGAPORE: Oil, gold and copper fell on Monday as the dollar firmed and investors worried that stimulus measures by central banks would take time to lift sluggish global growth and boost demand for raw materials. 

Oil dropped more than a dollar and copper and gold pulled further away from multi-month highs touched last week in the wake of a broad rally after global central banks unleashed easing programmes to boost growth. 

Palladium slid nearly 5 percent and Chicago soybeans hit their weakest since mid-August, pressured by rising output and slower demand. 

Moves by the United States, Europe and Japan to buy bonds to bolster their economies had lifted commodity prices in recent weeks, but investors struggled to push prices even higher against the backdrop of a slowdown in China and the euro zone and an uneven U.S. economic recovery. 

"Slowing economic growth is the major concern for oil markets," said Olivier Jakob, energy consultant at Petromatrix in Zug, Switzerland. 

"I think the market is taking a dose of reality here so investors are pulling back a little. It's a little overheated across the board," said Mark Pervan, global head of commodity research at ANZ in Australia. 

Adding to the sour sentiment was a drop in Germany's business sentiment in September for a fifth straight month to its lowest since early 2010, raising fears of recession. 

Brent crude fell below $110 a barrel, dropping $2 to a low of $109.42 before recovering slightly to trade around $110.14 by 1201 GMT, a loss of 1.3 percent. U.S. crude shed 1.7 percent to an intraday low of $91.34 per barrel. 

Brent dropped 4.5 percent last week, while U.S. crude lost 6.2 percent in their biggest weekly losses since June amid demand worries and as top oil exporter Saudi Arabia vowed to boost output to bring prices down. 

Daniel Jaeggi, co-founder of Swiss-based commodities house Mercuria Energy Trading, said on Monday that oil prices still reflected "the Iranian risk premium", but suggested that lower demand should put pressure on the market. 

"Overall, I think Brent around $100 (per barrel) - somewhere around $95 and $100 - given the macro-economic circumstances we have, is a lot more reasonable than $120." 

My view:

As discussed in our last post, oil looks quite weak here on a fundamental basis.

Yes, Iran and other Middle East players are acting up, but a clear decrease in consumption is becoming increasingly apparent.

Looking to the markets, the Transports segment of the Dow Jones Industrial Average has shown weakness for months as the overall index has moved to new highs.

This is a warning sign that the overall market will soon be ready for a significant correction.

ERY the energy bear hedge looks good here in my opinion.